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AB InBev - profits up as guidance is raised

Nicholas Hyett, Equity Analyst | 28 October 2021 | A A A
AB InBev - profits up as guidance is raised

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Anheuser-Busch Inbev Com Stock NPV

Sell: 49.87 | Buy: 49.89 | Change 0.63 (1.27%)
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AB InBev reported revenue in the third quarter of $14.3bn, reflecting 7.9% organic growth. Underlying cash profits grew 3% to $5.2bn.

As a result of "continued momentum" cash profit guidance was raised to between 10% and 12%.

The board has chosen not to issue an interim dividend.

The shares rose 4.7% following the announcement.

View the latest AB InBev share price and how to deal

Our View

Despite increasing commodity and supply chain costs, the group's navigating its recovery well. Sales have improved with easing restrictions, the group finding a good balance between raising prices and increasing volumes.

And because AB InBev has such high fixed costs, an increase in sales should be met with an even bigger increase in profits. (A brewery is a lot more efficient when it's working at full capacity). Of course, the opposite's also true, which is why last year was so challenging.

In developed markets a trend towards more premium products presents the opportunity to boost both margins and revenues. That's played into the group's hands as strong brands like Michelob Ultra, Stella and Corona have reaped the rewards of the shift.

Footholds in less-developed markets from Latin America to Sub-Saharan Africa mean there's scope for huge volume growth in the years ahead. We're already starting to see this in action, with record volumes in Brazil and Columbia. A growing middle class in those economies opens the door to price rises too.

We're pleased to see the group choosing not to pay an interim dividend this quarter, in favour of debt reduction. Which brings us to our biggest concern. Despite selling a minority stake in Budweiser APAC for $5.8bn, and the $10.8bn sale of the Australian business, debt was still a whopping 4.4 times underlying cash profits when we last heard. Some way ahead of its peers and higher than we'd like. If profits continue to rise that number with naturally fall, but the absolute debt level needs addressing.

AB InBev's enviable portfolio of brands and huge global footprint means revenues should be robust in most conditions. Its long-term growth opportunities shouldn't be dismissed either. But debt is a problem, and we have trouble being more positive while the balance sheet looks the way it does.

AB InBev key facts

  • Price/Earnings ratio: 17.6
  • 10 year average Price/Earnings ratio: 19.8
  • Prospective dividend yield (next 12 months): 1.7%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Third quarter results (underlying figures)

North America posted revenue of $4.3bn, with organic growth down 1.1% and volumes falling 4.8%. Cash profits fell 2.7% to $1.7bn as supply chain disruptions in the US impacted trading.

Revenue grew 14.5% in the Middle Americas to $3.2bn with volumes up 9.7%. Cash profits of $1.6bn were 10% up on last year. Momentum continues in Columbia where lockdowns continue to ease, record volumes helped both revenue and cash profits grow more than 30%.

Volume growth of 8.7% in South America helped a 24.8% rise in revenues to $2.5bn. Beer volumes in Brazil reached all-time highs. Cash profits were up 9.7% to $716m.

In Europe, Middle East and Africa revenue rose 11% to $2.1bn with volumes up 8.9%. The group continues to push its premium and super-premium portfolios, which now make up over 50% of revenue. Cash profits were up 14.9% to $754m, driven by growth of nearly 50% in South Africa.

Organic growth dropped 2% in the Asia Pacific region, with revenues of $1.9bn. Volumes dropped 5.9% as restrictions in China led to a "total industry decline". Cash profits for the region were down 3.1% to $673m.

The groups Global Export and Holding Companies saw revenue growth of 11.8% to $272m. Cash losses widened by 44.4% to $245m as volumes dropped 10.4%.

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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.